The slow demise of virtual tax havens
by James Egan 
Nov 29th 2008 at 8:00PM
Filed under: Economy, MMO industry, Opinion, Virtual worlds
Is taxation of commerce in the virtual space inevitable? We've been hearing more and more about this coming out of China, South Korea, and Sweden, but a recent piece on BBC News -- "Slapping a tax on playtime" -- hits a bit closer to home for many of us. Flora Graham, a technology reporter for BBC News, spoke with Professor Edward Castronova of Indiana University, well-known for his research and commentary on virtual economies over the years, and game researcher Dr. Richard Bartle about the impact of taxation on games and virtual worlds. Castronova points out the idea of taxation of virtual goods exchanged for virtual money, saying, "... it's an extraordinarily dangerous development... It's as if every time I played soccer in my backyard and scored a goal, I would have to pay the government three euros. It takes away from the game's contribution to human happiness."
Bartle's views expressed in the BBC piece are similar to Castronova's sentiments. "If you were taxed every time you bought a property in Monopoly, you'd be annoyed. The same goes for people in World of Warcraft," Bartle says.
BBC also caught up with Professor Theodore Seto, who said "It's easier to tax virtual transactions than it is to tax real-world transactions... The neat thing about it is, all transactions can be recorded. In the real world, we don't have that." He goes on to make a distinction between games where currency is ancillary to game play, and virtual worlds, saying, "By contrast, Second Life actively markets itself as a venue for making real money."
So what is the solution to keeping the tax man out of MMOs and virtual worlds? Castronova feels a (radical) change in how games are designed would reduce the incentive to acquire in-game wealth, or pay for it with real world money. Bartle, however, expresses the view that players who are caught buying their way ahead in the game with real world money could be hit with real world fines. See the full piece, "Slapping a tax on playtime" at BBC News for more on the state of taxation in the virtual realm.
Reader Comments (Page 1 of 1)
NekoAli said on 8:22PM 11-29-2008
I actually support the taxation in an appropriate manner. Which is to say when virtual currency is converted into real world currency. Until that point, no real world agency has any more right to tax my in game gold than they do to tax my yahtzee score.
If I make and sell items in Second Life, but all the money I make stays in world, then real world agencies have no rights to tax that currency exchange. It is simply out of their jurisdiction, and should remain so.
However, if I were to sell my Linden Dollars and convert it into real world money, then it becomes income, and should be treated as such.
For worlds with closed economies, where there is no (official or legal) way to convert in game currency to real currency, then taxation is absurd and should never take place. To even consider it is simply an act of greedily grabbing for money that they have no right to.
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Nadril said on 10:13PM 11-29-2008
That is the only way they could even feasably do it. The question too is, how large of a game does it have to be to become taxable? How would you tax an online game that spans over continents and countries?
Heraclea said on 1:59AM 11-30-2008
I welcome the notion of taxation of profits made in game currency. It's only fair. There is, of course, no obvious and simple way to maintain game activities and game gains as a going concern while requiring players to liquidate some of their game profits into real world currencies. Individual accounts lack the resources to do this efficiently.
So if game profits are to be taxed, there is only one possible outcome: real world taxes will have to be payable in game gold. From a gamer's perspective, the advantages of such an approach seems obvious.
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Malixu said on 7:48AM 12-03-2008
I agree absolutely. Blizzard should take a suitable sum off all profits I earn in WoW (while increasing the amount of money that vendors pay, and mobs drop by the same), and automatically deposit it in a government account at the end of the financial year.